Tax Type
Corporation Income Tax
Description
Excess cost recovery adjustment (ACRS)
Topic
ACRS Modifications
Date Issued
05-04-1987
May 4, 1987
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-323 Excess Cost Recovery Adjustment (ACRS)
Dear **********************
This is in response to your letter of February 12, 1987, in which you applied for correction of an assessment of Corporation Income Tax for the taxable periods ended 6/30/83, 10/31/83 and 10/31/84. You object to the adjustment made to include an addition equal to 30% of the federal deduction under the Accelerated Cost Recovery System (ACRS) as required by Virginia Code §§58.1-323 and 58.1-402 B. 3. (§58-151.013:1 prior to January 1, 1985).
Basis of assets
During the years in question the taxpayer sold some of its depreciable property. You claim that the basis of these assets should be adjusted to reflect the ACRS additions required by Virginia law.
While the additions are measured by the federal ACRS deduction, they do not affect the tax basis of property. The subsequent subtractions for recovery of the additions are associated with the taxable entity which was required to make the additions, not with the underlying property. (See enclosed letter dated May 25, 1984.)
Virginia starts with federal taxable income and makes additions and subtractions as specified by law. No addition or subtraction is specified for basis adjustments due to ACRS additions. The department has never permitted or required any adjustments to basis because of the ACRS modifications. See the ruling dated November 7, 1986, P.D. No. 86-228 (copy enclosed).
Election of longer recovery period
For some of its property the taxpayer elected to use a longer recovery period forthe federal ACRS deduction. You claim that the 30% Virginia addition should not be made with respect to this property.
Virginia Regulation VR 630-3-323 (copy enclosed) specifically requires the addition even when a longer recovery period is elected. This policy was announced as early as December 1, 1982, in Tax Bulletin 82-24 (copy enclosed).
Virginia Tax Reform Act
The Virginia Tax Reform Act of 1987 (1987 Acts of Assembly, ch. g, HB 1119) repeals the ACRS addition for taxable years beginning on and after January 1, 1988. The accumulated additions which have not already been recovered will be recovered in the five taxable years beginning on and after January 1, 1988. Thus, 1987 is the last taxable year in which the ACRS addition will be required.
Determination
Accordingly the assessment is correct and is now due and payable. You will shortly receive an updated bill reflecting you partial payment and accrued interest which should be paid within thirty days to prevent the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Related Documents
Rulings of the Tax Commissioner